Opportunity in ETFs with Commodities Exposure

As market swings become more prevalent and the
economy experiences rising inflationary pressures, investors may
consider commodities-related ETFs to diversify a portfolio.

"Commodities, being a real asset, tend to benefit
from unexpected inflation shocks. Theyâve also historically been
viewed as a safe haven when investors look to exit more volatile
asset classes. Therefore, inflation and volatility may serve as
catalysts for improving commodity prices," Dan Petersen, Director
of Product Management for IndexIQ, said in a research note.

Financial advisors can also learn more about
IndexIQâs insights at the upcoming virtual conference. On March 14,
2018, ETF Trends will be hosting its annual Virtual Summit, an
online virtual conference environment where financial advisors can
learn about current ETF issues, hear from industry experts and
connect with peers without the burden of cost and traveling.

Looking at the commodities market, oil futures
are exhibiting a favorable outlook for pricing ahead as the crude
oil curve flipped into âbackwardation," which typically occurs when
inventories are falling or are expected to fall. This has partially
been influenced by the oversupply that started in 2014, showing
signs of winding back down to its long-term average, Petersen
said.

Historical cyclical trends also show that it may
be time for investors to favor exposure to commodities. Petersen
argued that one of three situations will occur in the environment
ahead: commodity spot prices rise faster than their equity
counterparts, commodity spot prices fall less than equity prices
fall, or commodity spot prices rise while equity prices fall.

"No matter how you slice it, if the pattern
continues, it may benefit a portfolio to have exposure to commodity
spot prices," Petersen said.

Furthermore, another factor to consider is the
U.S. dollar. Over the last two years, emerging market currencies
have appreciated against the U.S. dollar. With these
commodity-buying countries on stronger financial footing due to
their strengthened local currencies, it could fuel increased demand
for cheaper USD-denominated raw materials, lifting commodity
prices.

As investors look for ways to gain exposure to
the commodities space, some may consider commodity producers or
commodity stocks. For instance, something like the IQ Global
Agribusiness Small Cap ETF (CROP) focuses
on small-cap companies in the agribusiness segment, which
agricultural business that produce products like fertilizers,
agricultural chemicals, farming machinery, packaged foods and
meats.

Investors interested in the global natural
resources space can take a look at broad ETF options, such as the
IQ Global Resources ETF (GRES) . Sub-sector
segments include the major commodity sectors, like precious metals,
industrial metals, livestock, energy, and grains, food & fiber,
along with timber, water and coal.

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